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Gilead Sciences Gets Another Green Light in Japan

By Brian Feroldi – Jul 7, 2015 at 4:59AM

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Gilead Sciences' Hepatitis C drug Harvoni gets approval for sale in Japan. Will that be meaningful to the company's future?

Source: Images_of_Money / Flickr Creative Commons.

Gilead Sciences (GILD -1.68%) investors were treated with some good news over the weekend. The company announced that Japan's Ministry of Health, Labour, and Welfare has approved the sale of Harvoni, which treats genotype 1 hepatitis C. This announcement comes only a few months after the Japanese Ministry decided to give the green light to the sale of Sovaldi in the county, which is used to treat genotype 2 hepatitis C, and helps to round out Gilead's dominant hepatitis C franchise.  

The market appeared to act favorably, though extremely modestly, to the announcement, sending the stock up about 1% on an otherwise down day. This minimal reaction by the market isn't all that surprising since investors were likely assuming the drug should have no problem gaining approval. Harvoni has performed spectacularly well in clinical trials, showing cure rates as high as 100%. 

Given this clinical performance, and the fact that Japan had already approved Sovaldi earlier in the year, it's no surprise that Harvoni received approval for sale. 

The opportunity
Japan currently has one of the highest rates of liver cancer in the developed world, which is mainly due to the high incidence of hepatitis C in the country. Hepatitis C prevalence in the country traces its routes back to the use of non-disposable syringes to administer immunizations in the 1950s. Unfortunately, this needle-sharing unknowingly infected huge numbers of Japanese residents with hepatitis C.

More than one million people in Japan are estimated to be infected with the disease, and about 350,000 new cases are diagnosed annually. Somewhere between 70%-80% of Japanese patients have the genotype 1 strain, which Harvoni is designed to treat. Around 20%-30% of these patients are genotype 2, which Sovaldi treats, so the two drugs together should be able to help cure the vast majority of hepatitis C patients in the country.

Harvoni is arguably more effective than any other treatment currently approved in Japan, so it should have no trouble winning a huge chunk of market share. However, while the opportunity for Harvoni in Japan is clearly huge, it's difficult to nail down an exact sales figure for the drug in the country. The Japanese government negotiates the price for all drugs that are approved for sale in the country, and a sales price for the drug was not released. However, the list price for Harvoni is $94,500 for a 12-week treatment course in the U.S., so even if the Japanese government could negotiate a sizable discount, the revenue opportunity for Harvoni in Japan is simply massive.  

Analysts are expecting big things from Gilead this coming year, with sales currently expected to top $30 billion. If the company can achieve that level of sales, it would represent growth of more than 20%, which would be quite an impressive achievement for a company of Gilead's massive size. Profits are expected to grow strongly as well, with EPS estimates for 2015 currently hovering around $10.79 per share for the year, which would also represent growth north of 20%.

Is Gilead a buy?
Gilead has been on a great run over the past year, as the stock is up more than 30% over that time, which is crushing the market's return over the same time period. Despite that fact, Gilead's stock is only trading for around 13 times trailing earnings, and a paltry 10 times next year's estimates.

Considering the near-term opportunity that exists for Gilead's hepatitis C franchise in the U.S., Europe, and now Japan, I think it's still a great time for investors to consider making an investment in Gilead.

Brian Feroldi owns shares of Gilead Sciences. The Motley Fool recommends Gilead Sciences. The Motley Fool owns shares of Gilead Sciences. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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